Another Rate Cut By RBI, Much Needed Relief to The Public and Corporate Sector

Reserve Bank Of India provided a much needed relief to the public and the sector by announcing a 25 basis point reduction in the key rate. This drop in the repo rate by RBI is its third slash for this year. RBI had started the year on a high by gifting the country with its first cut after a year, following another cut in the month of March. In the last policy review, RBI had kept the rates unchanged and nodded the banks to first drop the interest rates and pass the benefits to the general public.

IndiaCSR News Network

NEW DELHI : Fulfilling and following its promise of a rate cut cycle for this year, the Reserve Bank Of India (RBI) provided a much needed relief to the public and the sector by announcing a 25 basis point reduction in the key rate. This drop in the repo rate by RBI is its third slash for this year. RBI had started the year on a high by gifting the country with its first cut after a year, following another cut in the month of March.

In the last policy review, RBI had kept the rates unchanged and nodded the banks to first drop the interest rates and pass the benefits to the general public. This time RBI has reduced the rate from 7.5 percent to 7.25 percent, decreasing 25 basis points and SLR & CRR are been kept unchanged at 21.5 percent and 4 percent respectively.

This step taken by RBIislargely due to the slowing inflation rate and controlled fiscal deficit muscled with smooth performing manufacturing sector. The CPI has been easing for over a year now and India’s current retail inflation, the RBI’s main guide for interest related decisions, stood at a four month low of 4.87 percent, giving more room for the RBI to cut interest rates.

“The CPI has been easing since July last year and was below the projected trajectory assisted well by controlled fiscal deficit and inflation rate. The RBI had cut the repo rate at the beginning of the year and had also hinted at starting a rate cut cycle as well.

Thus, this move was well foreseen and is welcomed as this will help in forming positive sentiments across the market which in turn will create higher demand for property in near future. This also goes to show that the economic recovery has begun and this move is a valid proof for the same” stated Rupesh Gupta, Director, JM Housing.

The decrease in repo rate is expected to goad companies to spend & invest more, enhance capacities, create job opportunities and provoke people to spend on property, automobiles and other goods& services thereby increasing their purchasing power.

This will thus aid in the promising recovery of the country’s economy. A lower repo rate will reduce bank’s borrowing expenses, which in turn, may push them to drop their base rates, the floor interest rate on which lending rates for final home, automobile and corporate borrowers are fixed.A lower repo can lead to lower floating home loan rates, which move in sync with base rates, and bring joy to consumers, who have been paying a lot of their income every month towards EMIs for houses.

Kushagr Ansal, Director, Ansal Housing says “This rate cut was very much on the cards as fiscal deficit showed signs of improvement and inflation been kept under control. The output has been on a four month rise which propelled this decision further. After the last RBI policy, the demand in the real estate sector had kick started with banks reducing their lending rates. With a further reduction in repo rate now, the demand graph will see a positive growth in the upcoming months”

A healthy monsoon forecast will help in curtailing the prices but the report from Science & Tech ministry is already showing a delay and shortfall. At the same time, Rupee has been recently depreciating quite a lot and increased service tax now in effect is signalling warning signs for the upcoming months. It will be now wise for the banks to pass on the benefit to the customers so as to maintain momentum in near future.

Praveen Tyagi, CMD, VVIP said “With unseasonal rains and rupee depreciating, chances were high that RBI would have passed this policy with a pause”

The manufacturing sector has made a good comeback along with continuous check at the fiscal deficit and rate of inflation, thereby provoking the RBI to go ahead with a rate cut this time. Banks now need to cut their interest rates further so that the demand and investment in the real estate is pushed; and purchasing power of the consumers is enhanced

Hailing the move, Deepak Kapoor, President CREDAI – Western U.P. & Director, GulshanHomz added “With weakening rupee and core sector index shrinking to 0.4 percent in the month of April, this move by RBI shows aggressive decision making which will be very crucial for the upcoming months. The move was much anticipated as well with manufacturing sector bouncing back riding with a strong domestic demand along with slowing inflation. For the real estate sector, this is good news as key rate cut by RBI means interest rates can be declined further by banks which directly decreases the burden from the customers”

As many as 21 banks including four public sector players had reduced their base rate or the minimum lending rate in the range of 0.1 – 0.5 percent till April 15th this year, following consecutive rate cuts by RBI in January and March. After this rate cut, RBI has again asked the banks to lower their lending rates to help the borrowers save more.

Prithvi Raj Kasana, MD, Morphues Group believes “Keeping in mind the macro economy and its affects, it is vital that RBI keeps the repo rate on check in its each review meeting. This move is greatly welcomed for the real estate sector as EMIs will now be lowered if banks reduce their lending rates. This will greatly increase the purchasing power of the customers for this sector and also reduce the pressure of paying EMIs and rent together; therefore increasing the demand for property in the upcoming months”

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